January 16, 2013 / 6:20 PM / in 5 years

S&P assigns Carlyle Holdings Finance 'A-' rtgs

Jan 16 - Overview

-- Carlyle Holdings Finance LLC is an indirect subsidiary of Carlyle Holdings I L.P., and its notes are guaranteed by Carlyle Holdings I L.P., Carlyle Holdings II L.P., Carlyle Holdings III L.P., and The Carlyle Group L.P.

-- We are assigning our ‘A-’ issuer credit and senior unsecured ratings on Carlyle Holdings Finance.

-- The outlook is stable. We expect continued growth in fee-paying assets under management, supporting stable and recurring fee-related earnings. Rating Action On Jan. 16, 2013, Standard & Poor’s Ratings Services assigned its ‘A-’ issuer credit rating on Carlyle Holdings Finance LLC. The outlook is stable. We also assigned a ‘A-’ rating on Carlyle Holdings Finance’s senior unsecured notes due in 2023. Rationale The rating on Carlyle and its senior unsecured notes due in 2023 are based on its stable recurring fee-related income, scale, long track record, proven fundraising capabilities, and geographically diverse funds. Additional ratings support comes from its sound liquidity profile, partly as a result of strong current and expected distributable earnings (realized earnings). Other supporting factors include our expectation for continued growth in fee-earning assets; substantial accrued performance fees and uncalled limited partner commitments (dry powder); and, to a lesser extent, the side-by-side investments of The Carlyle Group’s management and investment teams. We believe elevated brand (“headline”) risk is a result of The Carlyle Group’s scale in the alternative asset management business. Further, the exposure of its financial performance (primarily realizations) to the economy, key man risk, and high leverage counter the rating strengths. We are willing to accept higher leverage for the rating based on our projected stability of fee-related earnings, substantial accrued performance fees, and the potential for future distributable earnings that Carlyle can use to reduce debt. Carlyle issued $500 million senior unsecured notes, which are fully and unconditionally guaranteed by the rated Carlyle Holdings I L.P., Carlyle Holdings II L.P., Carlyle Holdings III L.P., and The Carlyle Group L.P. Carlyle intends to use the proceeds from the senior unsecured notes to repay its revolving credit facility and prepay the initial amortization due under its term loan, and use the balance of proceeds for general corporate purposes. We view the repayment and prepayment of debt favorably. Outlook The outlook on Carlyle is stable, reflecting our expectation that it will continue to grow its fee-earning AUM. This will propel earnings and growth in distributable earnings, which will enhance liquidity. If assets do not grow according to our expectations, we would expect management to adjust the cost structure to maintain profitability (as it has in the past). We could downgrade Carlyle if its fee-earning AUM declines to less than $100 billion or if combined leverage increases beyond $1 billion. Although we are unlikely to raise the rating over the next 12-24 months, we could consider an upgrade in the longer term if the firm increases earnings from newer segments and limits leverage. Related Criteria And Research

-- Rating Private Equity Companies’ Debt And Counterparty Obligations, March 11, 2008

-- Counterparty And Debt Rating Methodology For Alternative Investment Organizations: Hedge Funds, Sept. 12, 2006

-- Rating Asset Management Companies, March 18, 2004 Ratings List New Ratings Carlyle Holdings Finance L.L.C. Issuer Credit Rating A-/Stable/-- Senior Unsecured $500 mil. 3.875% notes due 2023 A- Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor’s public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Primary Credit Analyst: Chris C Cary, New York (1) 212-438-1000;

chris_cary@standardandpoors.com Secondary Contact: Daniel Koelsch, FRM, Toronto (1) 416-507-2590;


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